Handle With Care

The fallout from the collapse of Silicon Valley Bank (SVB)–including concerns its problems were shared by or could spread to other financial institutions—continue to dominate the discourse and impact policy decisionmaking. For now, measures the Federal Reserve and Treasury announced last week appear to have stabilized the situation. 

In general, Democrats primarily blame SVB leadership and regulatory rollbacks during the Trump administration for the collapse while Republicans point to President Biden’s inflationary fiscal policies. While many Democrats have called for revising existing laws and stronger regulations, most Republicans maintain that it is too soon to act. 

Still, Congress has already scheduled the first of what promises to be several rounds of hearings examining all aspects of the crisis, while the Fed is working through its own review of supervision and regulation of SVB, with its findings slated for release in May.

Due to the weaknesses SVB’s collapse exposed in the entire financial system, Fed officials have found themselves forced to simultaneously fight two problems: financial instability and inflation amid evidence that the Fed’s actions to hike interest rates have affected the broader economy. 

The Fed attempted to straddle this divide by approving another quarter-percentage-point interest rate increase but signaled continuing instability could end its rate-rise campaign sooner than anticipated.